Climate risks: how are you managing?

Businesses have many risks to manage, and the World Economic Forum’s annual Global Risks Report identifies the biggest risks for national economies. Naturally, climate risks are among those, but the 2023 Report now identifies the failure of countries to mitigate and adapt to climate change as the most significant long-term risks – not so much asking the question “what is likely to happen?” as “how likely are we to prevent it?”

Climate adaptation risk is becoming increasingly significant, as the world’s economies adapt to reduce climate change and its effects. In fact, the report identifies it as the biggest national risk for the Netherlands. To assess the country’s adaptation risk more accurately, Deloitte’s Climate Risk Maturity Survey has evaluated the readiness of Dutch businesses to manage their climate risks.

Our maturity model draws on existing Deloitte frameworks for assessing businesses’ readiness in other fields. Across eight areas of climate risk activity – such as governance, risk mitigation, monitoring and systems – we benchmark each business by answering a set of standard questions, using published company information (e.g., annual reports). The aggregated results position companies (and the country overall) at one of three maturity levels: leading, responsible or basic. With an initial sample of forty businesses operating in the Netherlands, we then interviewed nearly a quarter, to confirm their published information and gain richer, qualitative insights.

Furthermore, the results of the Deloitte Climate Risk Maturity Survey were discussed with representatives from various Dutch companies at the roundtable held at Deloitte’s Amsterdam office on December 4, 2023. The roundtable served as a platform for the companies to share practical insights, discuss the survey results, and learn from each other’s experiences.

 

Results

Overall , we found the country’s businesses to be ‘responsible’ in their climate risk management. Although adequate, that result seems lower than expected for a country that considers itself progressive on climate change. Nonetheless, the ‘top five’ most mature companies in our sample emerge as ‘leading’, so we do have models of excellence.

Across all companies, regardless of industry, it is noticeable that most are reasonably advanced in terms of identifying risks and setting targets, while we see least maturity in the areas of mitigation , integration, systems and reporting.

Although policy-level maturity appears unremarkable, closer examination shows that board-level responsibilities for climate risk are actually quite well-defined, but those responsibilities have yet to mature at management level. Similarly, while climate risk has yet to be integrated into many business processes, its incorporation into enterprise risk management is already well under way.

Overall maturity is similar across our three sample industries, with Energy, Resources & Industrials (ERI) showing only slightly more aggregated maturity than Consumer or Technology, Media & Telecom (TMT) industries. However, ERI has by far the most companies ranked as ‘leading’ and the fewest as ‘basic’, compared with other industries . One notable finding is that ERI companies show significantly higher maturity than other industries in the area of data and systems. Even in our ‘top five’ companies, this area is by far the least mature, so ERI could be considered the most ‘well-rounded’ industry, by having the most consistent maturity level across all eight business activities .
 

Although the aggregated picture shows much room for improvement, the details reveal that we have a good foundation for progress. Not only are some companies already leading the way in climate risk management, but well-developed board-level initiatives and targets are also evidence of good intentions. The challenge we face now is how to translate those good intentions into practical and effective action, by raising less mature operational areas to the same level. And then increasing maturity further, across all business activities.

Just as a car (electric, of course) with a high-performance motor is useless without wheels or a capable driver (human or AI), effective climate risk management requires all areas of business to be equally mature. It’s pointless having a few smart initiatives without a clear guiding strategy, and good intentions have no effect unless made reality through operations, systems and processes. Business policy-makers clearly recognise the environmental and commercial benefits of managing their climate risk, and the need now is for practical action, to improve both individual business outcomes and collective national resilience.